Now that we have a team in place, we need to tighten the screws on the building budget, which will act as the “Master KPI” list for the Harbor Yards team. This budget is more than just a set of numbers; it’s the financial blueprint that will guide every decision, ensuring that the project stays on track and meets its financial goals.

Patrick and his teams are responsible for hitting operating expense line items, while Ollie, Rachel, and Alfred and their teams are responsible for hitting revenue line items. Adam oversees NOI & Cash Flow, and is responsible for reporting budget updates—the good and the bad—to Michelle and Leon. Each team member plays a critical role in ensuring that the budget is not only accurate but also realistic and achievable. Their ability to forecast expenses and revenues with precision will ultimately determine the project’s financial success.

The building budget process typically starts in August and ends before Thanksgiving.

The process begins with a detailed review of the project’s financials, broken down by month, starting in January of the upcoming fiscal year. The first step is to build out all line items—every expense and revenue source needs to be accounted for. Each line item isn’t just a number on a spreadsheet; it comes with a narrative explaining the rationale behind it.

To get accurate estimates, the team uses local sales and pricing comps, alongside a thorough review of the previous year’s budget and actuals. Patrick, in particular, will need to justify each operating expense line item and explain why he is budgeting a certain number for every month. His justification must be backed by data, and any assumptions must be clearly stated.

Adam will have the final say on the budget forecast. His role is to ensure that the budget is not only realistic but also aligned with the project’s overall financial goals. Adam’s oversight is key to maintaining financial discipline throughout the project, ensuring that the team’s projections are both ambitious and achievable.

In the course, we’ll walk through each of these line items and tabs of Harbor Yards’ budget to simulate the actual process of building a budget.

Another consideration for the Harbor Yards team will be how much space to commit to amenities, and how to operate them. Amenities represent a key driver for getting top-dollar rents in office and apartment buildings, but come at the cost of a loss in square footage, increased CapEx, and increased OpEx, in return for speculative rent and operating growth. So the team must carefully weigh the benefits of adding amenities against the potential costs and impacts on the overall project.

Lastly, the Harbor Yards team will budget for revenue driven by rent payments and some ancillary payments like parking, sundries, storage, fitness memberships, etc. These ancillary income streams, while smaller in comparison to rent, can add up and play a significant role in boosting the project’s overall revenue. The revenue targets aligned on by the team will then drive leasing strategies, and leasing strategies are dictated by the rent roll.

The rent roll is Adam and Ollie’s bible, and provides them with key information to play “Tetris” with tenants, as necessary, looking at the following terms in tenant leases: rent, termination options, term, relocation clauses, and renewal options. By carefully managing these lease terms, they can optimize tenant mix, reduce vacancies, and maximize the project’s financial performance. This strategic approach to leasing is vital for ensuring the long-term success of Harbor Yards.

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